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Glossary  -> Capital Dividend

Capital Dividend

Income Tax Act s. 83(2), Reg. 2101

Canadian controlled private corporations (CCPCs) keep track of certain non-taxable income amounts, and are able to pay these amounts to shareholders as a capital dividend.  The capital dividend is not taxable to the shareholders, thus is not reported on a T5 and is not reported on the tax return of the recipient.  The corporation must file a capital dividend election when the dividend is paid or becomes payable.

The non-taxable income amounts are tracked in the company's capital dividend account (CDA), and include the non-taxable portion of capital gains, less the non-allowable portion of capital losses, plus the non-taxable portion of gains on eligible capital property (such as goodwill), plus non-taxable life insurance proceeds.  The CDA balance is reduced by capital dividends paid by the corporation.

For certain gifts, such as a gift/donation of certain listed securities to a qualified donee, the taxable amount of the capital gain is deemed to be zero.  Thus, the full amount of the capital gain is non-taxable, so is added to the CDA balance. Resources

Donating Shares or Other Capital Property - can eliminate capital gains

Canada Revenue Agency (CRA) Resources

Income Tax Folio S3-F2-C1, Capital Dividends

Revised: October 26, 2023


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